How The Self-Employed, Entrepreneurs And Freelancers Can Save For Retirement

An increasing number of people are working for themselves, either through choice or desperation, in Singapore. With the estimated number standing at close to 14% of the workforce in Singapore, this is not a small group of people.

As a self-employed, entrepreneur or freelancer, it is not easy to plan a regular savings schedule as your monthly income can greatly vary each month. In good months, you could be raking in the big bucks and the very next month, your earnings could be next to nothing. It all depends on the projects you deliver and your clients’ payment terms.

You also do not benefit from Central Provident Fund (CPF) contributions from your employers. This stable, albeit enforced, savings scheme partly meant for your retirement will not help you.

Fortunately, you’re in this line of work because you are independent, goal-oriented and focused. You just need to apply these attributes to your retirement planning now. Here are three ways you can do this.

# 1 Set A Retirement Date; And Save Towards It

Just like you have deadlines for your work contracts, you need to have a deadline for your retirement.

You need to be honest with yourself today. you cannot put off retirement planning because you will not be able to work forever, no matter how much you love your job. In the long-term, given the rise of automation and always evolving labour market, there’s no guarantee your skills will continue to be relevant forever, and in any case, there is no guarantee you will be healthy enough to remain working.

# 2 Utilise CPF For Your Retirement Savings

As a self-employed, entrepreneur or freelancer, you are obligated to contribute to your Medisave account if you earn more than $6000 per year. Most people in this group should be earning this minimum amount so, you need to make these mandatory contributions.

While this is your obligation, which is meant to protect individuals from future unexpected medical expenses, you can also make voluntary contributions to your CPF Ordinary Account (OA), Special Account (SA) and Medisave Account (MA). This will help put aside money for your retirement, as well as earn you a decent return of up to 3.5% for your OA, up to 5.0% for your SA and MA. On top of that, you will be able to offset your income tax against any contributions to your CPF accounts.

By regularly setting aside money to contribute to these accounts, you will save on income tax, boost your retirement nest egg and grow it with the risk-free interest returns on the accounts.

# 3 Building Your Savings/Emergency Funds

You should save every month. Instead of spending on things that you want, consider only buying what you need. We’re not saying you should not have any entertainment in life, we advise you to carefully consider which entertainment expenses you can actually afford.

When you are younger, in your 20s, you should save as much of your earnings as possible. And as you take on more responsibilities in life, with a spouse, child(ren), car and other financial obligations, you can save less. When you are older and closer to retirement, you should try to alleviate as much financial obligations as possible, including paying up your home and considering doing away with your car.

As a rule of thumb, you should be saving at least 30% of your earnings in your 20s, 10% in your 30s and 40s and about 30-40% in your 50s.

You can earn good interest rates at several banks in Singapore earning an interest upward of 3.5%, note that this is only true if you’re transacting other financial products with them. Otherwise, you can also consider putting this money in the Singapore Savings Bonds (SSB), giving you an interest return of approximately 2.18% per annum if you hold it for the entire 10-year period. Both give you the flexibility to withdraw at short notices.

Also, you should be keeping a minimum of nine to 12 months of monthly expenses as emergency funds. This is to tide you over during slow months as well as periods where you are not able to find work. Given that your income is never guaranteed, you need to have this is spare for you and your family’s peace of mind.

Singapore is an expensive place to live, and you need a retirement plan to ensure yourself and your family a safety net. We know running your own business and chasing for new jobs all the time can be exhausting. But you’ve chosen the life of a self-employed, entrepreneur or freelancer, and you have to plan for your retirement more actively than salaried workers. There are perks that come with this lifestyle, and you have to take the additional stress that comes with it.